Proposal to Limit Oil and Coal Projects Draws Fire

By NICOLE ITANO

Published: March 24, 2004

JOHANNESBURG, March 19—
African mining companies, governments of developing countries and international banks have expressed concern over a proposal that the World Bank restrict oil and coal projects to protect the environment.

''We don't like it at all,'' said South Africa's minister of minerals and energy, Phumzile Mlambo-Ngcuka, after meeting with African mineral and energy ministers last month in Cape Town. ''We think it takes an ideological approach rather than a practical one.''

African governments that are heavily dependent on oil and mineral extraction fear that the new environmental proposals, like more stringent waste disposal, as well as a possible ban on financing for new oil and coal projects, could harm future investment.

The proposal came in the form of a report drafted by Emil Salim, a former environmental minister from Indonesia who was appointed to prepare it in 2001 by James D. Wolfensohn, the World Bank's president. The study was commissioned in response to criticism that the oil and coal projects contributed little to the bank's stated goal of alleviating poverty.

Leaked drafts of the World Bank's response to the report indicated that the bank would not support its most controversial proposals -- an end to financing coal projects and the phasing out of lending for oil projects by 2008.

But Dr. Salim, the report's author, has not abandoned those elements of the report and is continuing to seek support for them.

The report has reignited a debate over the benefits to developing countries versus the environmental toll of mining and oil extraction. On one side are groups that have long argued that mineral and oil projects in the developing world pollute and foster corruption; on the other are the mining companies and governments of many poor countries, which say that exploiting natural resources can help raise people out of harsh poverty. Several Nobel laureates -- led by Archbishop Desmond Tutu of South Africa, Jody Williams, Sir Joseph Rotblat, Betty Williams, Rigoberta Menchú Tum and Mairead Maguire -- have thrown the weight of their names to the environmental side, advocating the report's complete adoption, including its proposed phaseout of oil and coal projects, in a letter to the World Bank in February.

''These oil and coals projects are not proven to alleviate poverty,'' said Jon Sohn, a senior policy analyst for Friends of the Earth in Washington, which also favors adoption of the review's findings.

''There's a misconception or misinformation campaign inside the bank that this is really just about some environmental groups that are trying to push an agenda,'' Mr. Sohn said. ''With people like Desmond Tutu speaking out, they're finding this is a global issue.''

In his report, Dr. Salim found that mining and oil projects could contribute to development but only if certain environmental and social conditions were met.

It criticized World Bank projects in Colombia and Ecuador, for example, saying that mining supported by the bank had fouled land owned by indigenous peoples and had led to a weakening of their legal rights. But it also pointed out that some resource-rich countries like Botswana -- the world's largest diamond exporter -- had used the proceeds of their mineral wealth to benefit its people.

Most controversially, Dr. Salim argued that, in order to uphold its commitment to sustainable development, the bank had an obligation to promote clean energy by ending its financing of coal and oil projects.

''There is ample supply of funding by the big conglomerates in oil (BP, Shell, Exxon, etc.) to finance oil and coal projects, especially in a price-distorted market economy,'' Dr. Salim wrote in an e-mail message. If the World Bank wants to focus on reducing poverty through sustainable development, he said, then it needs to address overreliance on oil and support renewable energy sources.

The bank's management was expected to respond to the report by April or May, but that response has been delayed to give it more time to evaluate the report. Later this year, the bank's directors -- who represent the bank's 184-member nations -- will determine which elements should become policy.

The stakes, say those involved, are far greater than the bank's direct financing of oil and mineral projects; the bank has enormous power to set standards for the financial industry as a whole. Twenty of the world's major banks have agreed to uphold the environmental and social standards set by the World Bank's International Finance Corporation under an agreement called the Equator Principles.

The World Bank directly finances only a small percentage of the world's oil and mining projects, primarily through the International Finance Corporation, its private-sector lending arm.

Since 1980, mining and oil have accounted for 4 percent of the bank's lending and project support and averaged about $800 million a year, mostly for oil-related projects. Africa gets a small share of that, but some projects on the continent, including a $3.7 billion oil pipeline in Chad partly financed by the bank, have been among the organization's most controversial.

The pipeline, which began operations last year, was built by Exxon Mobil, Petronas of Malaysia, and ChevronTexaco, and its financing came with strings attached: the oil revenues have to be transparent, and the money used to improve the lot of Chad's people. Environmental and development groups, however, have accused the companies of not fulfilling their promises, like building schools, and that Chad's government has used money from the project to buy arms.

Specific recommendations of the report included the creation of zones deemed environmentally sensitive where no bank financing would be allowed, a ban on projects that dump waste into rivers, and new regulations to minimize the cyanide and mercury used in gold and platinum mining. The review also calls for the bank to get approval from local communities before financing any mining project.

''The problem is that the recommendations for coal and gold and also for other industries are so onerous as to be unachievable,'' said Frans Barker, a senior executive of the Chamber of Mines of South Africa, which has taken a stance against the Salim review along with mining groups from other southern African countries. South Africa is the world's largest gold and platinum producer and the second-largest coal exporter. And more than 90 percent of its locally produced energy is coal based.

The World Bank's director for oil, gas and chemicals, Rashad Kaldany, who met with the African mining and energy ministers in Cape Town, defended the bank's projects in those areas and said that they were generally better managed and cleaner than privately financed ones.

But he added that the World Bank's management supported most of the review's findings.

''We certainly feel that a large number of recommendations we can work with, live with and recommend to the board,'' he said. ''I think that's been lost because of this issue about oil and coal.''

Photo: An oil operation in Komé, Chad, part of a $3.7 billion pipeline to Cameroon, which is financed in part by the World Bank. (Photo by Agence France-Presse -- Getty Images)